With President Obama’s re-election, it’s likely that quantitative easing will remain in place until such time as US economic growth gets considerably stronger. Given the expected drag on growth from efforts to reduce the government deficit, the label QE infinity seems appropriate for quite a while yet.
Gold had a positive response to Obama’s likely re-election and technical analysis suggests a decent probability that this is a significant turning point for gold. I’ve outlined some thoughts on this below.
QE3 saw gold break out of the large triangle that had confined it since September 2011. However, in a vintage case of buy the rumour, sell the fact the rally peaked in October when it hit the resistance of the blue trend line.
If the labelling on the weekly chart is correct, the triangle forms part of a corrective 4th swing in an major 5 swing uptrend. The break through the top of the triangle sets us up for a major move higher, taking us beyond the peak at “3” ($1921)
Monday’s low could be a significant turning point
The lowest point shown on the chart below corresponds with the final touch of the triangle support at “e” on the weekly chart.
The following things suggest that Monday’s low could be the end of the recent corrective decline. Monday’s low was:
- Potentially the end of an ABC correction
- Made from the 50% retracement of the “2” to “3” swing
- Made from a level that was close to a 61.8% projection of the swing down from “3” to “a”. I left this off the chart to cut down the clutter but you can draw it yourself using the Fibonacci price tool
- Made from trend channel support
- Just above the 200 day moving average
After yesterday’s strong rally the fast stochastic on the higher time frame weekly chart crossed its moving average (see arrow). Although it did so from well above the oversold zone it is not unusual for this to be associated with significant lows (see previous arrows).
If all these indicators prove to be right and the corrective decline has now ended, the big picture of the weekly chart suggests that the next swing higher will be part of the ongoing major bull market in gold